The courier, express, and postal industry is the largest segment of the transportation marketplace worldwide. This blog will provide a personal perspective on the challenges faced by firms in the industry as they serve an increasingly competitive market.

Saturday, April 16, 2011

Once again the Washington Post's editorial board illustrated their ignorance on Postal issues. In an editorial focusing on labor issues, the editorial board illustrated an understanding about labor negotiations that is particularly peculiar given the newspaper industry's history in reducing labor costs as it faced the threat of e-competition. The editorial board reinforced the impression that it does not know what it is talking about by confusing retirement with health benefits.

By stating that the contract with the APWU is inadequate, they assume that a better contract could have been negotiated or obtained through binding arbitration. The truth is changes in wages in benefits that the Washington Post believes are needed only are implemented when the company negotiating new labor agreements faces the threat of liquidation from creditors or shut down by owners outside of bankruptcy. The only way that would have occurred with the Postal Service would be if Congress demanded that the Postal Service liquidate its business to pay off its retiree health care and workers compensation obligations unless the Postal Service and its unions agree to reductions in wages and benefits. The Post editorial board should know that because only through the threat of liquidation and bankruptcy have newspapers been able to cut the wages and benefits and changed the work rules in the contracts of its employees.

Given that the Postal Service is the core part of the mailing industry that generates over 8.4 billion million jobs and $1.1 trillion in sales. Most of these jobs exist because businesses, including the Washington Post Corporation advertise their products and services through the mail or deliver parcels to consumers through the USPS or a private sector competitor in conjunction with the Postal Service. Shutting the Postal Service down on September 30, 2011 to force further reductions in labor wages and benefits would wreak havoc on next fall's retail sales. Currently 20% of all retail sales that can be delivered are now being delivered and that share will likely to be higher by next fall as on-line sales are growing at double digit rates while sales of these items regardless of sales method are growing at low single digit rates.

The contract that the Postal Service signed goes far to eliminate the fixed 40-hour schedules that drive up costs and increase the possibility that employees will be on the clock with no work needed. This change is the equivalent to the elimination of the work rule changes that took the railroad industry nearly a decade to negotiate that eliminated the 110 mile rule, eliminated jobs for firemen in diesel locomotives that no longer required a fireman, and eliminated the caboose. Discounting this change, ignores what is probably the biggest cost impediment preventing the Postal Service from cutting the costs of sorting mail and parcels.

The contract puts wage rates and benefit levels for new hires at competitive levels that reflect the poor financial health of the USPS. These new hires will not only start at a lower wage rate but it will take them longer to reach the top salary and that top salary will be lower than the top wages for current employees. The new contract also allows the Postal Service to have up to 20% of its clerks and mailhandlers filling non-permanent positions with health care benefits below that of the non-Postal Federal employee. Once the contract is signed, a significant portion of clerks will be in this position and over time the Postal Service should reach the 20% level.

The health care premium issue (that the Post wrongly describes as a pension issue) is a bit more complicated than what the Post noted. While full time APWU members will pay a smaller share of the total health care premium than other Federal workers, the levels negotiated are not out of line with benefits offered at FedEx or UPS. Furthermore, once you add it the health insurance costs of the 20% of APWU members that will not have permanent positions, the average cost for health benefits per hour paid at the Postal Service should be equal or less than the cost per hour for all other Federal employees.

The Postal Service could get even more savings from the APWU contract by using a tactic that the Washington Post has used repeatedly to cut its own costs, early retirement incentives. If the Postal Service had the cash to offer early retirement incentives to its older APWU and other union employees, just as it has offered management employees that it could increase the rate of attrition so that it could lower the average wage rate of its employees by taking advantage of the provisions in the new contract that allow for non-permanent employees and a lower wage scale for new employees.

The lack of cash is where legislation proposed by Representative Stephen Lynch, Senator Tom Carper and Senator Susan Collins fits. By providing needed operating cash now, these bills give the Postal Service the cash necessary to offer the retirement incentives and make the capital investments necessary to shrink its processing network and modernize its retail network. In criticizing Representative Lynch's bill, the Post Editorial Board appears to prefer liquidating the enterprise rather than giving it the cash necessary to fund the transition to the modernized retail infrastructure and streamlined network that will be required for the 150 billion pieces of mail and parcels that will be delivered in 2020.

This Post's position makes sense only if the liquidation value of the Postal Service equals its retiree and workers compensation liabilities. This is unlikely to be the case so the Post's position would force the federal government to take losses after liquidation.

Representative Lynch's bill as well as similar provisions in bills introduced by Senators Carper and Collins make sense if they are part of comprehensive financial rescue plan that includes real financial targets needed to ensure self-sufficiency and a capital and transition investment plan that includes significant retirement incentives and investments in a lower cost network, modern information systems, and a modern retail network. Then the Postal Service like other corporatized postal entities should generate the profits from both its competitive and monopoly products necessary to operate as a self-sufficient entity and pay dividends on its profits.

The wasteful spending and pampering of the top execs is where huge amounts of money can be cut. They are taking everything away from the workers while it never occurs to anyone to stop management's life of luxury. 100,000 injured workers who were laid off can't get their claims approved and are receiving no pay. The phrase, "going postal" may be in the news headlines if this keeps up.

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Blog Author

Alan Robinson is the President of the Direct Communications Group and an associate of Analytic Business Services (AnaBus). He has over twenty years experience helping firms and government officials deal with the regulatory, policy, marketing, and management issues associated with changes in competition within transportation, parcel delivery and postal markets.
He can be reached at alan.robinson@directcomgroup.com